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Cable Technology Feature Article

August 28, 2013

Entropic Numbers Down in Second Quarter Report-Can the Company Turn it Around?

By Christopher Mohr, TMCnet Contributing Writer

The latest financial report from Entropic (News - Alert) Communications, Inc. did not do much to add to investor optimism.

The stock is only dimes above its 52-week low of $3.53 after closing Tuesday at $3.96. Net revenues were $70.6 million, slightly above estimates that had it at $70.3 million, but more than five percent below the $74.5 million total from a year ago.

Third-quarter sales are expected to drop to the $55-57 million range, about a one-fifth drop from the second quarter. This news resulted in a sharp drop in share price (about 18 percent) after the company’s July 31 report.  

San Diego, CA (News - Alert)-based Entropic Communications, Inc. manufactures semiconductors for connected home networking and entertainment systems. These include channel and MPEG-2 decoders, demodulators and solutions for satellite, broadband, teleconferencing and surveillance. It trades on NASDAQ under the symbol ENTR.

In June, Entropic acquired Mobius Semiconductor for $13 million in cash, plus employee equity-based incentives. The move allowed Entropic to offer more solutions to cable and satellite companies. It comes one year after Entropic bought Trident (News - Alert) Microsystem’s set-top box (STB) business in the wake of Trident’s bankruptcy.

Entropic is also pursuing several international markets. EKT STBs using Entropic chips were chosen by Telefonica (News - Alert) Czech Republic for their IPTV upgrade. The company is also pursuing the STB market in Brazil, where Pay-TV is very popular.

According to CEO Patrick Henry, the company’s recent setbacks should not hurt it in the long run:

"We continue to focus on getting these new designs ramping into production, and believe the strategic investments and decisions made in Q2, from our asset acquisition, company realignment, reductions in operating expenses, and focus on new product development, put us in a stronger position for long-term revenue growth and enhanced operating leverage."

So what’s next for Entropic? Numbers did not improve after buying out the Trident STB business 16 months ago. Comcast (News - Alert) indicated it would increase spending on STBs, but that did not improve Entropic’s numbers either.

The likely deciding factors will be how well Entropic does with its entry into the Czech and Brazilian markets and how much domestic cable companies invest in STBs with Entropic chips. Without a boost in either one of these markets, the outlook does not look good.

Edited by Rory J. Thompson

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